Reduced Income is leading to Mortgage Problems

[Anonymous]

Hi out there.  I'm facing an overwhelming situation and have been trying to work it out on my own but I discovered this great site and am hoping to get some advice/input/info etc about what options to take.  Here's my situation:

Live in Virginia and while I was younger (5 years ago) I got way in over my head with credit card debt.  So to start fresh I filed a Ch. 7 bankruptcy and began to steadily work hard to rebuild my credit.  Then about 2 years ago, when I was making very good money and had improved my FICO as much as I could with a Ch 7 I was able to buy my house.  Things were going great, paid all my creditors on time, always paid more than owed etc.  Then I lost my job with no warning in Sept 2008 and was unemployed for 5 months. I ate up all my savings trying to keep up with my mortgage payment (which when I bought the house was less than a third of my monthly income) but in January 2009 I fell behind.  My mortgage company at that time stated they didn't participate in any "modification" options but did work out a forbearance with me.  I have since found a job thankfully but my income has been slashed over 50% compared to what I had.  Plus the "forbearance" to pay off the past due amount has increased my mortgage payment and said payment is 68% of my monthly income.  I've tried everything I can to increase my income/reduce debt (2nd job, slicing all services to bare minimum etc) but I'm obviously still struggling.  And since I fell behind on all my debt due to my unemployment my FICO has plummeted to 513(mid score), so all other financing options are a lost cause due to the credit crunch as well as the reality any financing I get will end up costing me more in the long run than my current situation.  I've contacted my mortgage company to see if they would do an extension of the loan (40 years) to lower the payments but have to receive any type of response.

So where I need the community...What options make sense??  Is Ch 13 an option since I filed Ch 7 just 5 years ago and if so would it really renegotiate my mortgage payments?? And since my score is already so low would it really affect it much more??  Is there anyway to force my mortgage company to modify my loan if they're not one of the banks mandated to do so??  Should I just walk away since it's been a year and I can't get my income up where it needs to be??  And if I walk away, what's the best way to do so?? Short sale (in this market?), deed in lieu or foreclosure (again with the same question about how it would affect my already nasty score).  Can I still be held responsible for the mortgage if in forecloses in VA?  

Update:  Spoke to Mortgage lender who stated they can not modify my loan at all due to it being deliquent and therefore exceeds the orginal purchase cost(???).  My roommate has a family illness and may have to move out therefore reducing my income even more.

I know that I gave A LOT of information and asked A LOT of questions, but I'm lost and struggling with my decision so any help/info is so greatly appreciated.  It's amazing how quickly life can turn around on you and while I know I'm not alone out there, it sure does feel like it sometimes.  So thanks to all who respond to this.

Message Edited by Lel on 02-16-2010 08:30 AM

[BIRDWRITER]

Hi, I don't have any answers for you, but wanted to give you a bump. Also, try reposting this on the mortgage forum..there are a lot of mortgage guys there who could maybe help.

GL!

[RobertEG]

Wow, my heart goes out to you!

This site has a "mortgage loan" forum where the mortgage loan experts reside.

I suggest you log on there and post your situation there for best possible advice. 

[Lel]

phynixskye, welcome to the FICO forums, though I wish it could have been under better circumstances.

Regarding your options for your mortgage (I don't have the answers about bankruptcy), have you contacted your lender since January 2009 about a possible loan modification?  Back then, there was no government-sponsored loan modification program.  It is possible that your lender has since signed onto the plan.  Check out the Making Home Affordable website to see.

There's no way to compel a lender to modify your payments.  Some people have been advised to intentionally miss payments to try to force a modification, but this is no guarantee of success.  If, however, you are unable to pay for life's basic necessities, then missing mortgage payments may be inevitable.

With your current 68% DTI (is that based on gross or net income?), it may be impossible for your lender to modify your loan in a way that makes it affordable to you.  In this case, the modification will be denied.

With regard to your options if you cannot modify your loan, I would first review the recourse laws in Virginia.  Recourse laws dictate the extent to which a lender seek deficiency payments in case of foreclosure.

Foreclosures and deeds-in-lieu of foreclosure both have severely negative effect on credit scores, but there are slight differences in future mortgage qualifying depending on which route you choose (a DIL is somewhat less restrictive than foreclosure).  Short sales are also a serious derog, but perhaps not as bad as foreclosure and DIL.  Future loan qualifying is also somewhat easier than the other two options.  Have you actually confirmed that your loan balance exceeds the fair market value of your home?

Good luck.

[Anonymous]

Thanks everyone for the suggestion to move this to the Mortgage Page, which I did!!! I appreciate the info and input!!

[Anonymous]

More than likely a loan mod is not an option.  Most banks will only work with you 1 time and they did that with the forebearance.  On top of that, one of the main qualifying factors is ability to pay. There would be no way for them to lower your payments enough to get you down to normal mortgage limtis (31% mortgage debt) just by extending the loan and/or lowering the rate.  Contrary to all of the commercials you here on the radio, actual mortgage balance reductions just do not really hapen in the real world.  Maybe when there was some fraud involved or predatroy lending and lawyers have the bank red handed, but not in most cases.

As far as credit goes, and future credit purchases, the honest truth is it won't make that much difference in any case.  BK will not help your mortgage, just postpone any foreclosure procedings for awhile.  With a BK and credit problems in the past, any serious default whether it is foreclosure, short sale, DIL, is going to kill any chance of another home loan for a long time. Your best bet is probably to stop paying right away and let your mortgage default.  contact the bank after a month or two and have them run the numbers to make sure they can not do a loan modification.  Put the money you would be spending on the mortgage into savings (do not touch any of it).  See what the lender sayd about the modification (expect it ti tkae a couple months to hear back).  Id they say yes, then you have some savings built up and can move forward with the home.  If they say no, then stay in the home as long as you can saving the money the whole time.  Then when it all comes to a head you will have a pretty decent savings built up.   The one thing to check is that in your local area they can not come after you for the default amount once they sell the home. 

In the end, your credit is already gone, so unless you can afford to keep up the payments and still live then you probably are going to have to let go of the home.  If you do that, in your curent situation, the differences in future credit (based on whether you SS, foreclose, or DIL) will be negated by past and recent credit history so why worry about FICO at all.  Do whatever maes the most financial sense and gives you the best chance of getting your feet on solid ground.